Thursday, May 3, 2018

Project Syndicate Article: From Dollar to "e-SDR"

Whenever I see a proposal related to a broader use for the SDR as a global currency, I try to mention it here since this blog attempts to follow ideas and proposals for monetary system change. This new article appearing on Project Syndicate looks like another proposal to try and find an expanded role globally for the SDR. Below are a couple of excerpts and then an added comment.

Of course, the Triffin dilemma can be avoided, and America’s outsize influence over the monetary system reduced. All that is needed is a major reserve currency that is not issued by a national authority. Gold was once supposed to fill this role, but it couldn’t meet demand for global liquidity and a store of value.A better option is the IMF’s Special Drawing Right (SDR), which the second amendment of the body’s Articles of Agreement asserts should become the world’s “principle reserve asset.” . . . . .

My added comment:This article talks about not only a broader use for the SDR but also the idea of incorporating the blockchain to get to what they refer to as an "e-SDR".

While I try to note any proposals I see along these lines, I should also note that I am not aware of any official effort by the IMF to move towards this proposal. In fact, in a recent report issued by the IMF on the role of the SDR that we covered here, they seem to suggest that there is little interest in trying to expand the role of the SDR within the IMF at this time.

I did notice that this article in Project Syndicate talked about the potential for instability and crisis due to current world events and suggested that this could create the need for the kind of new global reserve currency they propose ("not issued by a national authority").

This is what we have been reporting here from some time. Under crisis conditions, the potential for major monetary system change would likely go up and we would probably see a lot of competing proposals emerge. Getting consensus on one proposal would appear to be quite a difficult task based on the research I have done on this over the past four years.

While I see all kinds of proposals out there related to the SDR, at this time there is nothing that I am aware to suggest anything like this is on the near term horizon absent a new major global financial crisis. But I try to alert readers of anything I see proposed.

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